Colombia wagers US$100M in investments against looming Uber regulations

This article was written and published in Spanish and has been translated into English via Google Translate. Click here to read the original article.

Experts say that if the case of Uber and Cotech S.A.S takes a negative course, the development of the digital economy, entrepreneurship and the technology sector in Colombia could be affected - as well as affect investor confidence.

The decision announced by the Superintendence of Industry and Commerce on Uber left grief and a series of contradictions that, for many, would call into question the bets of the National Government in the orange economy and the ICT sector in the country.

It is no secret to anyone that companies like Uber, Cabify, Beat, and Didi are experienced in these two areas, and that they clearly landed in the countries where they operate revolutionizing the transport sector and highlighting the lack and need for regulation to normalize the operation of these disruptive ventures. And in the case of Colombia there has been evidence.

According to Uber, Colombia is the only country in Latin America where conversations are not even initiated to regulate platform intermediary transport services, which has been permeated by a series of facts that leave it in evidence. The first and most notorious is the indecision in the Government about the legality or not of the platform. The ICT Ministry ensures that Uber is a technological platform, on the other hand, the Ministry of Transportation assures that it is not legal as long as it does not comply with the transport regulations established in the country.

The second is the taxi drivers. Since 2014, one year after the platform entered into operation in the country and after its success, the yellow union expressed its disagreement and annoyance with the service provided by Uber, which drastically affected its trade.

This is how Colombia has been leaving the subject in limbo for five years and that it has become a nightmare for both government entities and for the ecosystem actors themselves. In that context, the decision of the administrative judge that gave the reason to Cotech SA, a company that declares itself as a provider of Taxis Free services, on the unfair competition of Uber in Colombia opens again the debate on the country's regulatory vacuum in this matter, as well as the effects on the entrepreneurial system, the orange economy and investor confidence.

According to Mauricio Jaramillo, digital consultant and expert on the subject, the decision could have several consequences depending on the development of the case. He explains that one of the consequences is that Uber decides to leave the country given the lack of regulation and legal instability for its operation: 

"I do not think that this scenario is so viable. However, if this decision were made, the offer in terms of transport would be affected, since part of Uber's success here in Colombia and in other parts of the world is that it made the offer in terms of mobility. So an exit from the company would cause 88,000 drivers to leave the market, leaving large gaps in demand."

Another consequence is that it would become a bump for the orange economy. According to Jaramillo, what may happen in this case would weaken the message of development and momentum of the orange economy and the entrepreneurship led by the Government. For the expert, this would generate uncertainty among potential investors and entrepreneurs who see a market opportunity in Colombia.

"In the end there are many things that would be affected, including the image of the country, which would lead to investors being alert and even stopping projects with fear that something similar to Uber would happen to them."

Mauricio Toro, representative to the Chamber and author of the bill that seeks to regulate these platforms, agrees with Jaramillo that this type of announcement goes against "a government that promotes digital economy and entrepreneurship."

"This highlights a direct persecution of the government that speaks of the digital economy, of the development of technology. There is no doubt that there is a strong conflict of interests here."

Toro also says that this decision would weaken investor confidence in the country. In a conversation, he mentioned that several companies of this type would be rethinking the investments they would make in the future here in Colombia, even with a view to taking them to other destinations that provide more judicial security to their operations.

"That impact costs us about US$100 million, while the Government emphasizes that it went to Silicon Valley to bring US$30 million," said the representative.

And it is not necessary to wait until the case is concluded to see the effects of the lack of regulation of the platforms. In October of this year, Uber announced that it would cancel an investment of more than US$40 million in the country due to legal uncertainty. According to the company, the resources would be destined to the creation of the Latin American Center of Excellence in the country, with which it was projected to generate about 600 new jobs.

Another of the sectors affected would be employment. Toro points out that the suspension of Uber's operations in Colombia violates the right to work of citizens who see a work alternative on these platforms, in times where getting work has become an impossible task.

"What is not seen is that many Colombians are generating additional income from these bets. At a time when employment is overwhelmed, the lack of operation of these platforms would leave hundreds of families without support."

On the other hand, the country would also lose in terms of tax collection, since only Uber in the last year for VAT, the technology company has paid a total of $35 billion as of December 2018, corresponding to this tax.

But not everything is negative. The decision could also open a space to definitely regulate the platform. Jaramillo says that, depending on the direction of the case, this could take between one and two years, in which the Government could make accurate decisions about its regulation.

“This discussion comes from the time of the Santos government and is an issue that should be resolved by now. In several countries of the world the regulation of this type of platforms is already resolved and in Colombia we have not been able due to the lack of will of the parties. This is undoubtedly an opportunity for this regulation to finally take place.”

And precisely, in the Congress of the Republic a bill is under way that seeks to regulate these platforms. The project led by the representative to the Chamber, Mauricio Toro, contemplates some measures for user safety such that drivers of this type of transport have the same requirements as taxis in matters of damage insurance and all risk insurance for accident.

The project would also require the Ministry of Transportation to develop, within 1 year, a mechanism that allows taxis to have "dynamic fare", provided they adopt technological and GPS means for such calculation. Another important issue raised by the project is that the platforms pay income tax on the full rate in Colombia.

This article was written and published in Spanish and has been translated into English via Google Translate. Click here to read the original article.

Join us February 26-27 for the Property Portal Watch Conference Bangkok 2020.